Precious metals are a popular asset class worldwide. These metals are often viewed as a good hedge against inflation, which is often the case (but not always).
Rather than buying the actual precious metal commodity itself, it’s way more convenient to buy an ETF.
My guide to the best precious metals ETFs in Canada will identify some of the top investment products you can consider for this purpose.
Market Factors Influencing Precious Metals ETFs
Let’s dive into some of the major market factors that can have an impact on precious metals ETFs:
- Global Economic Conditions: Precious metals, especially gold, are often seen as safe-haven assets. In times of economic uncertainty, investors might flock to gold, driving its price (and the price of related ETFs) upwards.
- Interest Rates: An increase in real interest rates can provide investors with higher returns from bank deposits or government bonds, potentially making precious metals less attractive. On the other hand, a decrease in real interest rates can make precious metals more appealing.
- USD Strength: Since many precious metals are priced in U.S. dollars, a stronger dollar can decrease the price of precious metals and vice versa.
- Mining Costs: The cost of mining can directly influence the price of precious metals. If it becomes too expensive to mine, it may drive up the prices.
- Supply and Demand: Like any other commodity, the basic principles of supply and demand apply to precious metals. Factors like new mine discoveries or closures, increased industrial use, or changes in consumer demand can all affect prices.
- Geopolitical Events: Wars, political unrest, and other geopolitical events can increase demand for precious metals as safe-haven assets.
The Best Precious Metals ETFs In Canada
Several ETFs in Canada offer investors direct and indirect exposure to the performance of various precious metals. I will divide this section of my guide based on the two most popular precious metals: gold and silver.
Gold is widely regarded as an effective hedge against inflation and market downturns. Investors flock in droves to buy gold and gold-related assets during volatile market environments.
Buying gold bullion as a hedge might not be viable for many investors due to accessibility issues, storage problems, and a lack of liquidity.
The TSX boasts several ETFs that focus on gold and gold-related companies.
- iShares Gold Bullion ETF (CGL.TO)
- Horizons Enhanced Income Gold Producers ETF (HEP.TO)
- Horizons Gold Yield ETF (HGY.TO)
- iShares S&P/TSX Global Gold Index ETF (XGD.TO)
- BMO Equal Weight Global Gold Index ETF (ZGD.TO)
- Harvest Global Gold Giants Index ETF (HGGG.TO)
- Horizons Gold ETF (HUG.TO)
iShares Gold Bullion ETF (CGL) is a fund that seeks to replicate the gold bullion price performance.
It offers you targeted exposure to gold prices hedged against the Canadian dollar, letting you get convenient and cost-effective returns by indirectly investing in physical gold.
2. Horizons Enhanced Income Gold Producers ETF (HEP)
Horizons Enhanced Income Gold Producers ETF (HEP) is a fund that invests in a portfolio of companies primarily exposed to gold mining and exploration operations.
The fund allocates its assets to publicly traded companies that rely heavily on gold prices for their financial performance.
Its top holdings include Franco Nevada Corp., accounting for 11.24% of its asset allocation. Newmont Corp. accounts for 10.92% of its asset allocation, and Wheaton Precious Metals Corp. accounts for 9.82% of its asset allocation.
3. Horizons Gold Yield ETF (HGY)
Horizons Gold Yield ETF (HGY) is a fund designed to provide you with exposure to the price of gold bullion hedged to the Canadian dollar.
It delivers tax-efficient monthly distributions, and it uses a covered call option strategy for a third of its gold portfolio to mitigate downside risk while generating income.
Its primary holding is the SPDR Gold MiniShares Trust, accounting for 98.73% of its asset allocation. It is a slightly expensive fund, with an expense ratio of 0.98%.
IShares S&P/TSX Global Gold Index ETF (XGD) is a fund that replicates the performance of the S&P/TSX Global Gold Index.
The underlying index comprises a globally diversified portfolio of publicly traded gold-producing companies with operations related to gold mining, exploration, and gold products.
The fund’s top holdings comprise Newmont Corp., accounting for 18.50% of its asset allocation. Barrick Gold Corp. is its second-largest holding at 14.88% of its asset allocation. Franco Nevada Corp. is third, with 12.75% of its asset allocation.
5. BMO Equal Weight Global Gold Index ETF (ZGD)
BMO Equal Weight Global Gold Index ETF (ZGD) is a fund designed to mirror the performance of the Solactive Equal Weight Global Gold Index.
The fund’s underlying index comprises a portfolio of liquidity screened publicly-traded companies in the gold industry worldwide.
The fund’s top holding is K92 Mining Inc, accounting for 4.50% of its asset allocation. Alamos Gold Inc. accounts for 4.15% of its asset allocation. Yamana Gold Inc. accounts for 4.13% of the fund’s asset allocation each.
6. Harvest Global Gold Giants Index ETF (HGGG)
Harvest Global Gold Giants Index ETF (HGGG) is a fund that is designed to provide you with investment returns based on the performance of the world’s leading and largest gold companies.
The fund tracks the performance of the Solactive Global Gold Giants Index TR. HGGG ETF is unique on this list because it narrows its focus on 20 equity securities of the largest gold industry giants in an equal weighting.
Some of its top holdings include Alamos Gold, accounting for 6.4% of its asset allocation. Osisko Gold Royalties Ltd. accounts for 5.6% of its asset allocation, and Yamana Gold Inc. accounts for 5.5% of its asset allocation.
7. Horizons Gold ETF (HUG)
Horizons Gold ETF (HUG) is a fund that tracks the Solactive Gold Front Month MD Rolling Futures Index ER.
The underlying index tracks the performance of the front-month gold futures contracts and rolls the exposure over four days from the active contract into the next active contract, posting returns in USD.
HUG ETF hedges any US dollar gains or losses from its investment back to the Canadian dollar to mitigate currency fluctuation.
- Purpose Silver Bullion Fund (SBT.TO)
- iShares Silver Bullion ETF (SVR.TO)
- Horizons Silver ETF (HUZ.TO)
- Horizons Betapro Silver 2x Daily Bull ETF (HZU.TO)
- Horizons Betapro Silver 2x Daily Bear ETF (HZD.TO)
Silver ETFs are funds that track the performance of silver and silver-related assets, providing you with investment returns based on their performance. Silver’s performance is closely linked to gold, making it another popular hedge.
Purpose offers one of the lowest-cost ETFs in this space, investing directly in physical silver bullion. The fund holds silver in 1,000-ounce international bars or minor amounts of silver certificates.
SBT has a medium-length performance track record and is a tiny ETF in terms of assets. The fund is at risk of closing down in the future if it is unable to attract additional capital and should be monitored.
SBT does not offer investors any income stream since it invests purely in silver bullion.
As one of the most inexpensive ways to invest directly in silver, SBT is a great option to consider, especially if it attracts more capital in the future.
SVR has a very long performance track record and is a decently-sized ETF in terms of assets under management. With regards to fees, it is more than twice as expensive as Purpose’s SBT ETF, for the exact same investment.
iShares rates SVR as a high-risk investment which is a fair assessment of volatility. The ETF does not offer investors any income stream since it invests purely in silver bullion.
HUZ is a passive fund that tracks the Solactive Silver Front Month MD Rolling Futures Index ER.
The ETF comes with a very long performance track record and is a small ETF by AUM. Despite not owning silver physically, it comes with a relatively high MER when compared to silver bullion ETFs.
HUZ could be at risk of closing down early in the future if it is unable to attract enough assets under management.
If you are looking to invest in silver futures without actually trading the contracts themselves, HUZ is an excellent replacement.
If your appetite for risk is very high, Horizons also offers a leveraged approach to investing in silver, again through futures.
HZU will offer investors twice the daily performance of silver futures and aims to return two times the return of the Solactive Silver Front Month MD Rolling Futures Index ER.
Leveraged ETFs are designed to be mainly used as trading tools and are usually not recommended as long-term investments. They can be useful for making tactical adjustments to a portfolio.
HZU has a very long performance track record and is a decently sized silver ETF in terms of assets under management.
- Ticker: HZD.TO
- Inception Date: June 29, 2009
- Assets under Management: $3.07 Million
- Management Expense Ratio: 1.64%
- Investment: Inverse Leveraged (2x) Silver Futures
- Management Style: Passive
- Risk Rating: High
- Distributions: Annually
- Stock Price: $13.64
- YTD Return: 1.26%
If your appetite for risk is very high and you are bearish on silver prices, Horizons has yet another solution on the ETF shelf in Canada.
HZD will offer investors twice the inverse daily performance of silver futures and aims to return two times the inverse return of the Solactive Silver Front Month MD Rolling Futures Index ER. As an example, if the index returns 3% over the course of a day, HZD should return roughly -6%.
HZD has a very long performance track record and is a tiny silver ETF in terms of assets under management. Investors should keep a close eye on the fund’s asset level as it could be at risk of closing down early in the near future.
With regards to its MER, it is extremely high relative to other silver ETFs on our list.
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Rare metals are not the only commodities that can deliver superior investment returns by offering you a hedge against inflationary environments and market volatility.
Check out my list of the best commodity ETFs in Canada that discusses several funds you can add to your portfolio if you want the security of commodity performance.
Many investors want to focus on investing in individual gold stocks to narrow their focus on the performance of the rare yellow metal.